Pakistan and the International Monetary Fund (IMF) are exploring taxation and enforcement strategies to generate an additional Rs700 billion in revenue for the 2025-26 budget.
With the budget set to be presented in Parliament on June 2, the government has urged the IMF to adjust tax rates for salaried individuals, as well as the tobacco and beverage sectors. However, the IMF has expressed concerns over lowering tax rates for middle-income earners, particularly those earning between Rs0.2 to Rs0.4 million per month, and has questioned its impact on overall revenue.
The Annual Plan Coordination Committee (APCC) is scheduled to convene on May 26 to finalize macroeconomic policies and development plans for the National Economic Council (NEC).
For the tobacco industry, authorities may consider increasing the Minimum Legal Price (MLP) beyond its current level of Rs162.25 per packet without altering existing tax tiers or Federal Excise Duty (FED) rates. Over 80% of cigarette brands currently sell at or slightly above the MLP, leading to concerns over pricing violations.
The Ministry of Finance and the Federal Board of Revenue (FBR) have proposed an annual revenue target of Rs14,307 billion. However, discrepancies between Pakistan’s nominal growth projections and IMF estimates have led to a Rs300 billion gap, with Pakistan estimating revenue at Rs13,556 billion while the IMF believes it may not exceed Rs13,200 billion.
If an agreement is reached on the proposed FBR revenue target, the government will need to secure Rs700 billion through additional taxation and enforcement efforts. One potential measure includes monitoring advance tax payments at Green Leaf Threshing (GLT) for unprocessed tobacco.
The tobacco industry continues to struggle with widespread violations of minimum pricing regulations, exacerbated by the rise of illicit cigarette brands. Meanwhile, discussions regarding tax reductions in the beverage sector have led to concerns about potential refund claims, which the FBR seeks to avoid.
Negotiations between the Pakistani government and the IMF remain ongoing as both parties work toward a sustainable fiscal framework for the upcoming budget.
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